US jobless rate drops to five-year low

The US jobless rate fell sharply to 7.0 percent in November, a five-year low, raising the odds Friday that the Federal Reserve could soon cut its huge stimulus program, AFP reports.

The fall from 7.3 percent in October was unexpected, and came as the economy generated a solid 203,000 jobs, picking up from the two previous months.

Job growth spread over the manufacturing, retail trade, health and professional service sectors, and suggested that US industry continues to gain confidence despite the continuing battles over the budget and spending cuts in Washington, which many economists have feared would slow hiring.

Analysts said the strength of the Labor Department report could give the Fed more reason to begin cutting back its $85 billion a month bond-buying program, aimed at boosting economic growth.

US stocks jumped on the news, with the S&P 500 gaining around 1 percent after having declined for five sessions.

Investors have shown concern that the "taper" of the Fed's bond purchases will push up interest rates.

But Friday's financial markets took the good news as good news: after climbing modestly since early last week, US bond yields remained flat on Friday, and still below the year's highs.

The job creation numbers now show a clear rebound from the mid-year slump: the average for the past three months is 193,000 a month, up from 166,000 in the June-August period.

But the pace is still below the 207,000 a month level of the first quarter of 2013, which had sparked the Fed to begin reviewing when to reel in the stimulus.

And with fourth-quarter growth still expected to be sluggish, many analysts said that Fed policy makers would likely not decide to begin the taper at their meeting on December 17-18.

Instead, they predict the central bank would hold off to see whether the data is sustained over another month. Some other indicators, especially inflation, have been unexpectedly soft, suggesting the economy still has important weaknesses, more than four years after pulling out of deep recession.

"American businesses are shrugging off fiscal concerns and hiring fast enough to keep the jobless rate on a downward course. In response, consumers are spending faster," said economist Sal Guatieri of BMO Capital Markets.

"The solid jobs report will lift December tapering odds, but we still lean toward a January shift," he said.

Jim O'Sullivan of High Frequency Economics noted inflation remained tame, "probably tame enough to encourage the Fed to temporarily hold off on tapering for one more meeting."

In June, when unemployment was at 7.6 percent, Fed Chairman Ben Bernanke said that the Fed expects to have completely ended the stimulus program by mid-2014 -- at which time the jobless rate likely would be down to 7.0 percent.

Since then, however, uncertain about the economy, the Fed has held back on cutting the bond purchases. Yet the jobless rate has fallen faster than expected.

Bernanke has said the 7.0 percent number is only an indicative figure, and Fed officials generally appear to have backed away from it.

"We're looking for overall improvement in the labor market," Bernanke stressed in September.

In the broader picture, the data released Friday was mixed. The number of unemployed Americans fell by 365,000 to 10.9 million, and total employment numbers surged.

But these gains were mostly due to the return to the rolls of full-time work by hundreds of thousands of government workers laid off temporarily in the first half of October due to the Washington government shutdown. Many had been recorded as out of work in the previous month.

The correction of October's distortions improved the labor force participation rate, but at 63.0 percent, it was still very low compared to levels before the 2008 economic crisis.

The participation rate, combined with the high number of long-term unemployed, have particularly concerned Bernanke, and underpin the Fed's reticence to cut back the stimulus as long as inflation is also weak.